Korea is overhauling its accounting rules by amending the Securities Exchange Act to conform with new international norms as a result of the Enron scandal and the Sarbanes-Oxley Act.
In April the Enforcement Decree and Enforcement Rules will be amended accordingly. The representative directors of Korean companies will then be required to sign documents for public disclosure certifying that they have read and confirmed the contents of the documents, that there are no material omissions or misstatements that might influence investors' rational decision making or the value of the firm's stock, and that they have evaluated the efficiency of the internal accounting management system. Companies with total assets of W1 trillion ($863 million) or more will be required to subject their quarterly reports to review by outside CPAs. Formerly, the requirement was applied only to companies with total assets of W2 trillion or more and whose shares are traded on the Korean Stock Exchange or Kosdaq.
The new law will also introduce qualifications for members of the accounting committee, restrictions on related-party transactions (such as with transactions among officers and majority shareholders), and compensation of up to W100 million for whistleblowers of illegal market behaviour such as price manipulation.
Further, the new Certified Public Accountant Act, enacted on December 31 2003, limits the scope of the activities that an accounting firm responsible for auditing can engage in by excluding the preparation of accounting records and financial statements, services for internal auditing, and building and operating financial information systems. This list will be broadened upon enactment of the Act's Enforcement Decree (scheduled for April) to encompass services and other important management functions.
Chul Hyun Kim